Originally posted by Steve M
And Hohn said,
THE UAW is bad because it artificially drives up the cost of labor
How much do you think it costs GM to build a new Tahoe? Yes-- less than $4000. No zeros missing, just huge economies of scale. Given their selling price, I would say that they are making a decent cut on each vehicle sold, wouldn't you?
The reason vehicles cost so much is simply because Americans are willing to pay that price
It's a GOOD thing for companies to be "beholden to shareholders".
That's all you needed to say to contradict yourself...
I guess I have some 'splainin to do...
Yes, the UAW drives up labor costs. The only other way to see it is that a free market would pay someone $30/hr to install windshields on the line. How much do you think groceries would go up if there was a lettuce-pickers union? Anyway, a free market system rewards skilled/educated workers with higher pay. When a UAW worker (HS diploma) makes as much as or more than an RN (master's degree)does, you can BET that something artificial has interefered with the labor market!
I checked with my source on the $4k figure (father of GM plant employee)-- he said it didn't include labor or advertising-- just parts. So 4K in parts, plus labor and all that other stuff. It's easy to see how GM STILL clears $10k of profit on each vehicle. But the $4k figure was not what I thought it was- my apologies.
ECONOMICS 101:
As I said, it's market forces that determine the cost ultimately. No contradiction. Since supply and demand set the price, then the way companies control profits are by controlling costs. Economics tells you that the Price of a Tahoe is determined by what people are willing to pay for a Tahoe- no more (people won't buy it), no less (company always wants highest price it can get). People don't HAVE to have a Tahoe. Or even an SUV for that matter.
Let's get away from the simplistic explanation above and get more into product pricing. Truth is, there's no set price where they will or will not sell a Tahoe. It's a scale, where the number of buyers increases to a point as price drops. The opposite is also true. But it's not absolute: there are people who will not buy a Tahoe at any price, just as there are those who will pay a lot more for one.
So you can BET that GM does a lot of studying to determine what price to charge. For example, if they were selling 30 thousand Tahoes for $30K a pop and found that they only lost a couple hundred sales by jacking the price up to $34K, then you can guess which price they are going to charge.
They are trying to find that ideal price where they can charge as much as possible without getting it so high that the decreased number of sales offsets the higher profit per Tahoe.
But it all comes back to one thing: what people are willing to pay. If no one was willing to pay even $28K for a Tahoe, then what do YOU think the price would be?? I can guarantee it's not going to be higher! Moreover, what do you think would happen to the price of competing SUVs if Tahoes were $6K less than the others? Yes- price drops.
End Econ lesson.
As for companies beholden to shareholders, who would YOU have them to answer to? The Gov't? Some fatcat CEO? Being accountable to shareholders is ideal, because if the shareholders don't like the company or its products, they sell their shares and go elsewhere. Again, it's free market forces at work. When share price drops, it's because investors have a perception about the worth of a company or its products-- specifically, they have a NEGATIVE view of the FUTURE of that company. Share prices for stocks are based on what people think of the future, not what is actually happening. That's why Amazon.com had such a ridiculous (high) share price even though it hadn't turned a PENNY in profit yet. The P/E was infinite! Compare that to more reasonable P/E ratios of about 20 (P/E= price/earnings-- share price divided by corporate earnings per share) for a blue chip company like Coke, IBM, etc...
If there's a bad part of the system, it's that there's not ENOUGH of being "beholden to shareholders". Companies can hide behind layers and layers of bureacracy and accountants to the point where the investors have a hard time getting the straight scoop.
That, and the fact there are a lot of Americans that just plain don't understand how things like this work. Our schools are embarassingly poor at teaching economics.
I too, find that it's the trend to bash American products. I fervently believe that American workers are as capable as any worker anywhere in the world. I am afraid, though, that the American workforce will realize less and less of that God-given potential as our society succumbs to the culture of entitlement and victimization. This hurts ambition and desire to achieve, thus meaning less realized potential in the American workforce. The UAW can hurt the performance of workers IF job security leads to apathy.
Moreover, there are two ways of thinking about worker performance: one says make every job very competitive with no loyalty shown. This fear of unemployment will motivate a worker to perform (well, with gov't support, unemployment isn't so fearful now).
The other school of thought is that you show your workers loyalty and they will repay you with loyalty and good performance. Or with laziness as they wallow in the security of a job the no longer have to earn to keep.
I personally think there's a time and place for each approach. I haven't yet figured out which is better because I see so many things on both sides that seem to say the opposite approach is better. I have not been able to settle that age old struggle between realism and idealism.
HOHN